RPC is one of those companies, like Bunzl to which it has been compared, that seems capable of finding endless value-creating acquisitions and cost savings. Its name stands for Rigid Plastic Containers and it tends to do large deals, unlike Bunzl, completing four in the past two years.
It is moving away from the sort of packaging required by supermarkets and into more specialist areas, with the proviso that purchases are big users of polymers and offer a return on capital of at least 8 per cent. Management have been making noises about another big deal recently and two duly arrived yesterday.
RPC is buying ESE World, which makes plastic waste containers such as wheelie bins for councils and waste management companies, at two centres in France and Germany. Though the announcement lacks detail, the deal ticks all the boxes.
ESE uses about 4.5 kilotonnes of polymers each year. Though some may be different sorts of plastics than RPC uses, there will be overlap and procurement savings. This was one rationale behind the acquisition in June of British Polythene Industries, which struggled to make headway because of the pricing power of suppliers over smaller customers.
Like BPI, which supplies farmers with films to wrap silage, for example, the acquisition takes RPC further beyond consumer packaging. The return is above 8 per cent and the €262.5 million price represents a multiple that may be a touch higher than RPC has traditionally paid but still seems reasonable.
It also announced yesterday its first move into Southern Africa, the Johannesburg-listed Astrapak for the equivalent of £79 million.
RPC’s half-way figures showed not only further improvement on return on sales but 3 per cent organic sales growth. The company again shifted upwards the expected synergies from earlier deals, a recurring theme. Consensus earnings forecasts were upgraded by about 7 per cent.
The share price graph speaks for itself — selling on 17 times’ earnings, which is about right for a consolidator of this type. The downside is if one of those deals goes wrong — but it hasn’t happened yet. Nothing wrong with taking a bit of profit, but the shares remain a buy.
MY ADVICE Buy
WHY Shares seem fairly rated for a strong business with an excellent record of making acquisitions and then extracting savings from them
Centrica
The dividend from Centrica, on which 600,000-odd private investors rely, now seems a bit safer than it was when we went to bed on Wednesday evening. The trading update before its close period at the start of the year is full of ancillary detail, but the most important point for investors is the increase in earnings per share forecast for this year to about 16.5p.
This puts further clear water between this and the expected payment of about 12.3p for the year and suggests there will be no repetition in February of the 30 per cent dividend cut experienced in February last year, the first in the company’s relatively short history.
Generally, the currents are running in Centrica’s direction. The higher oil price will help. The disposal programme continues, with one asset gone in Trinidad and Tobago and two more, in Canada and a Lincolnshire wind farm, seemingly on track.
Though it is early days, the payment for 2017 looks safe enough. Centrica’s shares, up 12¼p to 231¼p, have been rising sharply since November but they still yield 5.3 per cent. Not necessarily a buy, but those investors should sleep soundly enough.
MY ADVICE Hold
WHY Dividend looks safe enough for now
Redde
You could be forgiven for not knowing what Redde is, though the company has a market capitalisation of about half a billion. The word means restore or put right in Latin; this is the old Helphire business that ran into trouble a few years ago and ended up being controlled by the banks.
The company provides services to insurers, making sure that customers who suffer a breakdown or crash are looked after and get a replacement vehicle. It also deals with large vehicle fleets, keeping them on the road. The new management came in about four years ago and raised cash to wipe out that bank debt; they have been busy since ensuring that those backers get their money back in the form of dividends, which means all earnings per share after all expenses are paid in that way.
This gives the shares an attractive yield. The company’s trading update confirms that organic growth, 28 per cent in the year to end-June, continues apace as the company signs up new insurance partners. The market is consolidating; a bit more than a year ago it bought FMG, which provides services to large corporates such as the Highways Authority. The interim dividend this year will be increased by almost 9 per cent to 4.9p. There is no debt, clearly, though if the right opportunity came along the money could be raised. On the basis that the final dividend is a little higher than the interim, the forward yield for this year is 6.7 per cent. The shares, down 1¾p at 154¾p, have come back a bit since the autumn. That yield, therefore, looks attractive.
MY ADVICE Buy
WHY One of the better dividend yields on the market
And finally . . .
Another reassuringly dull trading update from Bunzl, which is exactly how investors like it from this distributor of workday things. Take out currency positives — most sales are in dollars or euros — and sales for the year were still up 4 to 5 per cent. This is mainly down to the constant stream of acquisitions, organic growth probably being about flat though there was some pick-up in the fourth quarter. The shares are down from more than £24 this summer to £20.68 last night, a fall that starts to look overdone.
